Are hefty OTA commissions really worth it for your independent hotel?

Online travel agencies or OTAs have firmly embedded themselves within the architecture of modern hospitality, and with good reason – millions of rooms are booked on these platforms every year. Ever since their introduction, OTAs have massively simplified things for guests by giving them the option to choose the ideal hotel room without having to visit brick-and-mortar travel agencies. Guests can also compare rooms and pricing from a list of hotels in the region, allowing them to better plan their trip. But what about the hotels? And especially the small and mid-sized properties? Has the OTA influence been beneficial or detrimental to their position in what’s becoming an increasingly crowded marketplace?

Let’s take a look at the pros and cons of OTA listing.

High commissions can inhibit hotel growth

The single-most significant bane regarding OTAs are their commissions. While the largest international brands are charged minimal commissions – sometimes they aren’t charged anything at all – the smaller independent properties are forced to part with as much as 20 – 30% in commissions. This severely impairs profitability and can deny young properties the rapid growth they need in order to establish themselves in an unforgiving market. Rate parity agreements further restrict hotels from carrying out their own marketing campaigns – many OTAs do not allow properties to list prices lower than their own, even on the hotel’s direct booking website.

These restrictions make it difficult for independent hotels to bring in enough money to contribute significantly to the bottom-line. However, there are strategies hoteliers can employ in order to get the best of OTAs without having to sacrifice too much revenue.

Exposure generates occupancy & helps build a brand

While OTAs may charge huge commissions, they compensate for it in a way through massive marketing campaigns – companies like Expedia and Booking.com spend several billion dollars annually on advertising. These are budgets that not even the most successful hotel chains in the world can match and the enormous exposure generated by these campaigns can have a noticeable effect on a hotel’s occupancy. Moreover, since many of these online agencies are international, they provide the hotel with the opportunity to attract guests from around the world. And considering international tourists are more likely to indulge in secondary spending, it helps the property generate more revenue from the guest. The ‘billboard effect’ is also another major factor that favors hotels listed on OTAs – it’s estimated that as much as 50% of guests that see a property on an OTA will visit its direct booking website, enabling hotels to circumvent the commissions. Although the billboard effect’s current status is up for debate, there’s no questioning the added credibility the brand receives just by listing on famous OTAs.

While it’s definitely impractical to say that independent hotels must avoid OTAs at all costs, they must employ measures in order to minimize their expenses where possible. OTAs that focus on regions where the property is already well-established, for instance, must be removed from the distribution strategy. Hotels can also offer special loyalty schemes for guests who book directly, and reward them with a small compliment like a free drink.

One thing’s for certain though – OTAs aren’t going anywhere and hotels aren’t going to unlist themselves, so it’s best to figure out a way to work together in a manner that’s mutually beneficial. For an independent property, the important thing is to establish the brand by carrying the hotel’s name far and wide and right now, OTAs offer the best solution to do this.